The Middle East and North Africa (MENA) region has made significant progress over the last decade, but with some of the lowest insurance penetration rates in the world, there is still considerable room for growth in the insurance sector, states a new report from Zurich.

According to “The Role of Insurance in MENA”, the report from Zurich Insurance Group launched at the World Economic Forum, MENA summit, held in Jordan from May 24-26, insurance can help transform the MENA economies.

The report states that insurance can address many of the economic and social challenges facing the region, including helping nations to diversify and modernize their economies to create sufficient employment opportunities for the young.

“The role of insurance in emerging economies is often not well understood and underestimated. For these fast growing countries, insurance supports the pace of economic development and protects quality of life. It safeguards and rebuilds the foundations of economic activity after unexpected loss, like in the wake of natural catastrophes,” said Saad Mered, CEO General Insurance Middle East & Africa, Zurich Insurance Group, in a press release. “Insurance can also play an important part in funding retirement solutions. It not only provides long-term savings vehicles, but also addresses risks that might affect the ability to save (i.e. disability) or living longer than expected (i.e. longevity risk) on one’s savings.”

The MENA region has some of the lowest insurance penetration rates in the world. The average insurance penetration rate across the MENA region is 1.5%, which is almost four times lower than Singapore and almost eight times lower than the UK.

Against this backdrop, wider use of insurance in the MENA region would greatly speed up the region’s continued economic progress.

According to the Zurich report, a concerted effort by policymakers, regulators and market participants is needed to address a number of market and regulatory challenges to enable insurance to grow in the region.

Financial literacy is a significant issue in the region. There is a widespread lack of financial literacy and a low-level of awareness about insurance products and their beneficial effects. The report proposes that the public and private sectors cooperate to broaden awareness and promote financial education.

Insurance can also be too expensive for the poorest part of the population. The report suggests that insurers tailor their products to reduce the thresholds for efficient insurance by simplifying policy terms and collecting payments in highly scalable ways (such as via mobile phones).

Regulatory standards in the MENA region also present an obstacle. They are relatively vague and less detailed and sophisticated than in developed countries. This can enhance the risk and screening costs for customers, allowing insurers with poorly developed risk management systems and poor reserves to enter the market. Therefore there is an urgent need to strengthen the regulatory framework and its enforcement.